Britain tightens grip on currency trading

LONDON - Britain's grip on the global foreign exchange market has tightened to such an extent over the past 12 months that almost a third of the world's currency transactions take place in the country.

Average daily turnover on the UK's foreign exchange market reached £587 billion ($1.65 trillion) in April, the last month for which figures are available from an annual survey by International Financial Services London (IFSL).

The trade body, which promotes the UK's financial services, said this represented 41 per cent growth on the same month in 2005. The UK expanded more quickly than any other foreign exchange market, with the world market rising in size by 38 per cent last year.

"The rapid growth in the volume of foreign exchange turnover over the past two decades reflects the continuing growth of international trade and expansion in global finance and investment," said Mark Maslakovic, senior economist at IFSL. "The UK, and London in particular, is by far the largest global market for foreign exchange trading, well ahead of the US and Japan."

This year, deals transacted in London will account for 32.4 per cent of all foreign exchange trading.

The UK's market share is almost twice that of next biggest player, the US, which has 18.2 per cent of all currency trading. Japan, with 7.6 per cent, and Singapore, with 5.7 per cent, are the next most important markets.

The US and Japan have lost ground on the UK over the past two years, with their market shares slipping from 19.2 and 8.3 per cent respectively in 2004. Britain's share has moved up from 31.3 per cent over the same period.

Maslakovic said the UK had emerged as the ideal centre for currency trading since Margaret Thatcher's Government abolished exchange controls in 1979.

Until then, foreign investors were almost entirely prevented from buying sterling unless doing so would benefit Britain's balance of payments figures.

UK residents, meanwhile, were not allowed to buy foreign currency for investment purposes, unless it was funded with the sale of existing overseas assets. There were also tight restrictions on UK residents' ability to hold foreign currency in deposit accounts.

Analysts estimate that almost £30 billion flowed out of the UK after Thatcher dropped the controls. However, the liberalisation has subsequently enabled the UK to cash in on its geographical position as a bridge between the US, Europe and the Far East.

IFSL said the UK had additional advantages. They include: a large fund management sector; a large number of investment banks and brokers; easy access to global markets combined with a tradition of welcoming foreign firms; high-quality professional services; efficient telecoms infrastructure; and the use of the English language.

In addition, Maslakovic said that while some domestic companies believe London is over-regulated, foreign traders' "perception [is] of a proportionate approach . . ".

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